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Omega Investment Co., Ltd.

Itoki (Company note – 1Q update)

Coverage
Share price (5/29) ￥854 Dividend Yield (23/12 CE) 2.93 %
52weeks high/low ￥879/360 ROE(TTM) 10.32 %
Avg Vol (3 month)  232.3 thou shrs Operating margin (TTM) 4.32 %
Market Cap ￥38.99 bn Beta (5Y Monthly) 0.97
Enterprise Value ￥36.18 bn Shares Outstanding 45.664 mn shrs
PER (23/12 CE) 10.45 X Listed market TSE Prime
PBR (22/12 act) 0.75 X    
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Demand for office furniture remains robust.
Record quarterly operating profit.

◇ Summary of 1Q results for FY12/2023: 5% net sales growth backed by strong demand for office furniture, with quarterly operating profit reaching a record high.

Itoki announced its 1Q results for FY12/2023 on 12 May, showing a 5% increase in net sales and a 20% increase in operating profit, and achieved a record-high operating profit on a quarterly basis. Sales were strong, mainly due to renewal projects and office relocations. Profits exceeded company forecasts thanks to sales increases and an improved profit margin which reflected enhanced customer value.

By segment, the mainstay Workplace business recorded sales of 27.7 billion yen (+3.0% YoY) and an operating profit of 4 billion yen (+14.3%), while Equipment / Public business recorded sales of 8.7 billion yen (+9.6%) and operating profit of 500 million yen (+87.8%). Both segments achieved increases in sales and profit.

The company’s sales and profits are biased for 1Q. Still, as of the end of the 1Q of the current fiscal year, the company had achieved 28.4% of its full-year sales estimate, 73.5% of the operating profit target and 89.1% of the forecast net profit attributable to owner of parent.

◇ Stock price: Up 45.4% since the beginning of the year; further upside expected, driven by the expansion of PBR.

The company’s share price has risen 45.4% YTD. In the same period, those of the peers in the sector rose between 5.5% and 24.1%, illustrating the superior performance of the company’s shares. This results from investors’ appreciation of the consistently robust demand for office furniture due to renewal projects to accommodate new ways of working and Itoki’s improving profitability due to sales activities focusing on increasing the value it provides for customers.

On 12 May, Itoki published a document entitled “Measures to realise management conscious of the cost of capital and share price”. The board of directors has decided on specific measures to achieve sustainable growth and increase corporate value over the medium to long term (see below for details). The company has stated that it will improve its PBR by taking these measures. This should raise the valuation of the shares further.

◇ Results for 1Q FY12/2023: 5% increase in sales and record operating profit on a quarterly basis.

The company’s 1Q results for FY12/2023 show sales of 36,965 million yen (+4.6% YoY), operating profit of 4,777 million yen (+20.5%) and net profit attributable to owner of parent 3,296 million yen (-2.7%). Operating profit reached a record high on a quarterly basis (the top chart on the next page).

In 1Q, the COGS ratio improved by 0.7 percentage points to 60.1% from 60.8% QoQ. The SGAE ratio fell by 1.0 percentage points from 28.0% to 27.0% QoQ, resulting in an operating margin of 12.9%, an improvement of 1.7 percentage points YoY.

  JPY, mn, % Net sales  YoY
%		 Oper.
profit		 YoY
%		 Ord.
profit		 YoY
%		 Profit
ATOP		 YoY
%		 EPS
(¥)		 DPS
(¥)
2019/12 122,174 2.9 903 -53.1 945 -60.1 -550 – -12.08 13.00
2020/12 116,210 -4.9 1,798 99.1 1,881 99.0 -235 – -5.18 13.00
2021/12 115,839 -0.3 2,536 41.0 2,437 29.5 1,166 – 25.82 15.00
2022/12 123,324 6.4 4,582 79.0 4,177 71.4 5,294 353.9 116.99 37.00
2023/12 (CE) 130,000 5.4 6,500 41.8 6,500 55.6 3,700 -30.1 81.70 25.00
2022/12 1Q 35,345 9.9 3,964 133.4 3,974 139.7 3,388 74.4 74.95 –
2023/12 1Q 36,965 4.6 4,777 20.5 4,824 21.4 3,296 -2.7 72.80 –

　

Sales/operating profit (Quarterly)

Note: Figures for IT/sharing projects are not shown in the figure as they are small.
Source: Omega Investment from company materials

See the chart below for the factors behind the change in operating profit. The increase in profits due to higher sales, improved gross margins thanks to restructuring projects, and lower logistics costs absorbed the increase in strategic expenditure, resulting in a significant profit increase.

◇ Segmental trends

1)Workplace business: Sales: 27,719 million yen, +3.0%; operating profit: 4,059 million, +14.3%.

Renewal projects increased in line with new hybrid ways of working after the outbreak of COVID-19. In addition, office furniture sales were strong, mainly due to office relocations. Meanwhile, the profit margin improved (13.2% in 1Q FY12/2022 → 14.6% in 1Q FY12/2023) as a result of increased sales and a focus on enhancing the value provided while anticipating the impact of rising raw material prices, resulting in a significant increase in profit (see next page, top chart).

Factor analysis of changes in operating profit

Source: The company materials for the 1Q results for FY12/2023 (published on 12 May, 2023)

Workplace business (quarterly)

Source: Omega Investment from company materials

2) Equipment / Public business: Sales: 8,789 million yen, +9.6%; operating profit: 553 million yen, +87.8%.

Demand for equipment for public facilities, such as display cases for museums and art galleries and digital signage, was strong, leading to an increase in sales of nearly 10%. Profit margins improved (from 3.7% in 1Q FY12/2022 to 6.3% in 1Q FY12/2023) due to increased sales and higher value provided by equipment for public facilities, resulting in a significant profit increase (see chart below).

Equipment / Public business (quarterly)

Source: Omega Investment from company materials

◇ Full-year forecasts for FY12/2023: No change in the company guidance.

The company forecasts for FY12/2023 include sales of 130 billion yen (+ 5.4% YoY), operating profit of 6.5 billion yen (+41.8%), ordinary profit of 6.5 billion yen (+55.6%) and net profit attributable to owner of parent 3.7 billion yen (-30.1%). The decrease in net profit for the year is due to the absence of an extraordinary gain on the sale of land in FY12/2022. Excluding this, profits will increase in the current financial year.
The company’s sales and profits tend to be biased for 1Q. As of the end of the last 1Q, the progress ratio against the full-year forecasts was 28.4% for sales, 73.5% for operating profit, 74.2% for ordinary profit and 89.1% for net profit attributable to owner of parent. This is slightly behind the 86.5% operating profit progress ratio registered in 1Q 2022/12. However, the company should be fine achieving its full-year forecasts comfortably as sales of projects for logistics facilities in Equipment / Public business segment are biased for 2H of the year.

◇Explicitly states to realise “the management conscious of the cost of capital and share price”.

With the release of financial results, the company stated its actions to realise the management conscious of the cost of capital and share price. The announcement says that the company is committed to achieving sustainable growth and increasing its corporate value over the medium to long term and that, to this end, it will further strengthen its earnings power, disclose ESG and other information in a timely and appropriate manner, steadily implement measures to improve the cost of capital, including capital policies, and improve the equity spread, thereby improving the PBR.

The company’s approach to achieving these goals, and the specific measures it intends to implement, are shown in the diagram below. These include 1. strengthening earnings generation capacity, 2. improving ROE by reinforcing financial and capital strategies, and 3. raising PER by practising proactive investor relations and deepening dialogue with them. As a result, the plan is to achieve PBR≧1 as soon as possible, which is currently one of the major challenges for companies listed on the TSE Prime market.

Actions to realise the management conscious of the cost of capital and share price

Source: Omega Investment from company materials

7972：5-year stock price move

Share price compared to TOPIX (last three years)

Financial data (quarterly basis)

FY (¥mn) 2020/12       2021/12       2022/12       2023/12
  1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
[Statements of income]                          
Net sales 37,707 26,997 21,489 30,017 32,167 29,451 22,396 31,871 35,345 28,411 26,205 33,363 36,965
　Year-on-year basis (%) 11.2 -9.3 -24.5 -0.1 -14.7 9.2 4.3 6.1 9.9 -3.6 16.9 11.2 4.7
Cost of sales 23,710 17,765 13,811 19,036 20,101 18,729 14,443 20,872 21,483 18,030 16,678 21,384 22,216
Gross profit 13,997 9,232 7,678 10,981 12,020 10,722 7,953 10,999 13,862 10,381 9,527 11,979 14,748
SG&A expenses 10,996 9,602 9,590 9,901 10,352 9,453 9,203 10,150 9,898 9,973 9,812 11,484 9,970
Operating income 3,001 -370 -1,912 1,079 1,698 1,275 -1,242 829 3,964 407 -285 496 4,777
　Year-on-year basis (%) 43.5 – – – -43.4 – – -23.2 133.4 -68.7 – -40.2 20.5
　Operating profit ratio (%) 8.0 -1.4 -8.9 3.6 5.3 4.3 -5.5 2.6 11.2 1.4 -1.1 1.5 12.9
Non-operating income 154 162 251 237 240 161 171 122 125 164 171 96 125
Non-operating expenses 273 168 107 172 250 257 101 185 115 130 177 539 79
Ordinary income 2,882 -376 -1,768 1,143 1,657 1,173 -1,179 786 3,974 442 -291 52 4,824
Extraordinary income 0 6 125 980 1,255 78 133 88 786 139 118 6,762 1
Extraordinary expenses 116 42 55 1,503 20 456 518 1,474 44 64 38 3,465 21
Income before income taxes 2,766 -412 -1,697 620 2,893 795 -1,565 -600 4,716 516 -211 3,351 4,804
Total income taxes 1,039 134 -195 654 1,028 490 -132 -796 1,381 246 -21 1,585 1,506
Net income 1,760 -557 -1,491 53 1,942 348 -1,440 316 3,388 288 -159 1,777 3,296
　Year-on-year basis (%) 43.6 – – – 10. – – 496.2 74.4 -17.2 – 462.3 -2.7
　Net income ratio (%) 4.7 -2.1 -6.9 0.2 6.0 1.2 -6.4 1.0 9.6 1.0 -0.6 5.3 8.9
                           
[Balance Sheets]                          
Current assets 69,811 60,382 52,463 57,183 65,543 62,170 55,249 57,753 69,458 64,096 59,873 71,027 72,230
　Cash and deposits 18,186 21,312 18,956 18,246 19,503 22,112 18,213 17,351 19,196 20,073 17,138 26,876 20,898
　Notes and accounts receivable
　- trade		 37,611 27,230 20,298 26,599 32,061 26,596 21,385 26,783 – – – – –
　Notes and accounts receivable
　- trade, and contract assets		 – – – – – – – – 35,205 28,234 24,111 29,316 34,519
Non-current assets 49,872 49,933 50,410 47,912 46,925 46,369 46,046 46,144 46,647 47,395 48,126 44,260 43,611
　Property, plant and equipment 27,612 27,350 27,329 26,206 25,184 24,779 24,887 24,417 25,105 26,042 26,932 24,978 24,689
　Intangible assets 5,113 5,623 5,853 5,590 5,504 5,419 4,885 4,114 4,128 4,168 4,145 1,819 1,837
　　Goodwill 2,391 2,207 2,189 2,093 2,018 2,016 1,407 1,317 1,214 1,222 1,200 517 446
　Investments and other assets 17,146 16,959 17,227 16,116 16,236 16,170 16,273 17,612 17,413 17,184 17,048 17,462 17,084
Total assets 120,352 110,940 103,453 105,096 112,469 108,540 101,295 103,898 116,105 111,492 108,000 115,288 115,841
Current liabilities 55,449 46,097 40,198 43,646 49,245 45,266 40,307 42,544 51,837 47,138 43,655 49,099 47,854
　Short-term borrowings 15,616 13,289 14,239 13,234 13,458 12,061 12,409 12,500 15,014 11,976 11,738 11,239 10,874
Non-current liabilities 18,327 18,220 18,079 17,259 17,506 17,088 16,257 16,277 16,334 16,020 16,178 16,278 16,238
　Long-term borrowings 9,475 9,574 9,453 8,508 8,711 8,193 7,435 7,591 7,427 7,174 7,266 7,530 7,453
Total liabilities 73,777 64,318 58,277 60,906 66,751 62,354 56,565 58,822 68,172 63,158 59,833 65,377 64,092
Total net assets 46,575 46,621 45,175 44,189 45,717 46,186 44,730 45,076 47,933 48,333 48,166 49,910 51,748
Shareholders’ equity 46,123 46,197 44,768 43,812 45,419 45,872 44,454 44,931 47,837 48,254 48,117 49,871 50,806
　Share capital 5,294 5,294 5,294 5,294 5,294 5,294 5,294 5,294 5,294 5,294 5,294 5,294 5,294
　Capital surplus 9,201 9,642 9,641 9,628 9,628 9,632 9,632 9,638 9,638 9,638 9,638 9,638 9,638
　Retained earnings 31,030 30,461 28,884 28,950 30,306 30,654 29,213 29,530 32,477 32,769 32,610 34,387 36,008
　Treasury shares -46 -6 -33 -182 -182 -161 -161 -161 -161 -134 -134 -134 -314
　Share acquisition rights     45 45 45 45 45 45 45 45 45 45 45
Total liabilities and net assets 120,352 110,940 103,453 105,096 112,469 108,540 101,295 103,898 116,105 111,492 108,000 115,288 115,841
                           
[Statements of cash flows]                          
Cash flow from operating activities   5,404   -843   4,577   -1,803   4,581   1,223  
Cash flow from investing  activities   -1,442   290   503   -1,673   -1,410   6,333  
Cash flow from financing activities   293   -2,560   -1,418   -1,240   -661   -765  
Free cash flow   3,962   -553   5,080   -3,476   3,171   7,556  
Net increase in cash and cash equiv.   4,240   -3,037   3,787   -4,687   2,711   6,911  
Cash and cash equiv. at beginning of period   15,494   19,735   16,697   20,485   15,797   18,509  
Cash and cash equiv. at end of period   19,735   16,697   20,485   15,797   18,509   25,420  

Source: Omega Investment from company materials

Financial data (full-year basis)

FY (¥mn) FY2012/12 FY2013/12 FY2014/12 FY2015/12 FY2016/12 FY2017/12 FY2018/12 FY2019/12 FY2020/12 FY2021/12 FY2022/12
[Statements of income]                      
Net sales 105,508 103,461 102,993 106,516 101,684 108,684 118,700 122,174 116,210 115,839 123,324
　Year-on-year basis (%) 14.6 -1.9 -0.5 3.4 -4.5 6.9 9.2 2.9 -4.9 -0.3 6.4
Cost of sales 70,027 67,118 66,797 68,374 65,021 69,966 77,436 80,495 74,322 74,145 77,575
Gross profit 35,481 36,343 36,196 38,142 36,663 38,718 41,264 41,679 41,888 41,694 45,749
　Gross profit ratio (%) 33.6 35.1 35.1 35.8 36.1 35.6 34.8 34.1 36.0 36.0 37.1
SG&A expenses 32,040 32,203 33,723 33,836 33,862 35,761 39,339 40,776 40,089 39,158 41,167
Operating income 3,441 4,140 2,472 4,306 2,800 2,956 1,925 903 1,798 2,536 4,582
　Operating profit ratio (%) 3.3 4.0 2.4 4.0 2.8 2.7 1.6 0.7 1.5 2.2 3.7
Non-operating income 813 813 841 898 771 750 889 677 804 694 556
Non-operating expenses 518 528 495 605 483 412 448 634 720 793 961
Ordinary income 3,735 4,425 2,818 4,599 3,087 3,295 2,365 945 1,881 2,437 4,177
Extraordinary income 269 685 615 171 97 228 919 27 1,111 1,554 7,805
Extraordinary expenses 352 238 262 524 267 121 204 35 1,716 2,468 3,611
Income before income taxes 3,653 4,872 3,171 4,246 2,918 3,401 3,081 938 1,277 1,523 8,372
Total income taxes 689 876 813 -385 1,068 959 1,339 1,517 1,632 590 3,191
Net income 2,702 3,910 2,160 4,530 1,907 2,402 1,722 -550 -235 1,166 5,294
　Net income ratio (%) 2.6 3.8 2.1 4.3 1.9 2.2 1.5 -0.5 -0.2 1.0 4.3
                       
[Balance Sheets]                      
Current assets 49,294 52,925 55,714 56,342 52,410 58,147 62,143 58,109 57,183 57,753 71,027
　Cash and deposits 17,441 19,553 21,211 21,456 19,839 19,977 16,229 17,030 18,246 17,351 26,876
　Notes and accounts receivable
　- trade		 24,935 26,243 25,965 26,138 23,241 26,869 33,160 28,244 26,599 26,783  
　Notes and accounts receivable
　- trade, and contract assets		                     29,316
Non-current assets 39,961 42,335 41,007 41,832 43,271 44,073 46,559 49,955 47,912 46,144 44,260
　Property, plant and equipment 27,928 28,193 27,041 26,395 25,322 24,426 26,362 27,781 26,206 24,417 24,978
　Intangible assets 705 1,230 1,109 1,313 1,142 3,651 4,437 4,945 5,590 4,114 1,819
　　Goodwill 6 34 26 240 208 2,793 3,005 2,413 2,093 1,317 517
　Investments and other assets 11,327 12,911 12,857 14,123 16,806 15,995 15,760 17,229 16,116 17,612 17,462
Total assets 89,256 95,261 96,721 98,175 95,681 102,221 108,703 108,778 105,096 103,898 115,288
Current liabilities 36,455 35,359 36,677 36,106 35,390 39,683 45,133 47,559 43,646 42,544 49,099
　Short-term borrowings 11,222 11,473 11,087 10,940 11,760 12,564 11,721 15,533 13,234 12,500 11,239
Non-current liabilities 14,560 16,874 16,854 14,756 14,888 15,211 16,076 15,385 17,259 16,277 16,278
　Long-term borrowings 4,122 5,124 5,089 5,171 5,296 5,328 5,113 6,633 8,508 7,591 7,530
Total liabilities 51,016 52,234 53,532 50,863 50,278 54,894 61,210 62,944 60,906 58,822 65,377
Total net assets 38,240 43,026 43,189 47,311 45,402 47,326 47,492 45,834 44,189 45,076 49,910
Shareholders’ equity 35,960 41,079 41,632 45,677 44,949 46,863 46,854 45,370 43,812 44,931 49,871
　Share capital 5,277 5,277 5,277 5,277 5,277 5,277 5,277 5,294 5,294 5,294 5,294
　Capital surplus 13,020 13,061 13,061 13,222 13,140 12,404 9,786 9,201 9,628 9,638 9,638
　Retained earnings 18,520 22,073 23,556 29,223 30,504 32,315 31,104 29,862 28,950 29,530 34,387
　Treasury shares -1,178 -833 -834 -3,000 -4,700 -4,701 0 -46 -182 -161 -134
　Share acquisition rights                 45 45 45
Total liabilities and net assets 89,256 95,261 96,721 98,175 95,681 102,221 108,703 108,778 105,096 103,898 115,288
                       
[Statements of cash flows]                      
Cash flow from operating activities 8,259 3,162 5,715 4,522 5,072 3,565 1,384 3,586 4,561 2,774 5,804
Cash flow from investing  activities -14 -1,978 -1,742 -803 -4,044 -2,971 -3,094 -3,221 -1,152 -1,170 4,923
Cash flow from financing activities -1,652 51 -2,179 -3,807 -2,571 -706 -2,463 0 -2,267 -2,658 -1,426
Free cash flow 8,245 1,184 3,973 3,719 1,028 594 -1,710 365 3,409 1,604 10,727
Net increase in cash and cash equiv. 6,601 1,944 1,814 184 -1,619 88 -4,031 952 1,203 -900 9,622
Cash and cash equiv. at beginning of period 9,555 16,156 18,102 19,918 20,103 18,483 18,571 14,540 15,494 16,697 15,797
Cash and cash equiv. at end of period 16,156 18,102 19,918 20,103 18,483 18,571 14,540 15,494 16,697 15,797 25,420

Source: Omega Investment from company materials

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